P19-1B Keppel Manufacturing had a bad year in 2012, operating at a loss for the first time in its history. The company’s income statement showed the following results from selling 200,000 units of product: net sales $2,000,000; total costs and expenses $2,120,000; and net loss $120,000. Costs and expenses consisted of the following.
| Total Don't use plagiarized sources. Get Your Custom Essay on p19 1b keppel manufacturing had a bad year in 2012 operating at a loss for the first 541941 For $10/Page 0nly | Variable | Fixed | |
| Cost of goods sold | $1,295,000 | $975,000 | $320,000 |
| Selling expenses | 575,000 | 325,000 | 250,000 |
| Administrative expenses | 250,000 | 100,000 | 150,000 |
| $2,120,000 | $1,400,000 | $720,000 |
Management is considering the following independent alternatives for 2013.
1. Increase unit selling price 30% with no change in costs and expenses.
2. Change the compensation of salespersons from fixed annual salaries totaling $170,000 to total salaries of $50,000 plus a 6% commission on net sales.
3. Purchase new high-tech factory machinery that will change the proportion between variable and fixed cost of goods sold to 40:60.
Instructions
(a) Compute the break-even point in dollars for 2012.
(b) Compute the break-even point in dollars under each of the alternative courses of action. Which course of action do you recommend? (Round to the nearest dollar.)
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